Discuss "velocity" in the formula MV = PT. Using www.economagic.com, get annual data for M1 and GDP from 1959. Use the "transform this series" tool to calculate the velocity of money. What does velocity mean in GDP terms? (How much GDP is supported by $1 in 1959 vs. 1975 vs. 2000?) How did it change over this period? Why did it change over this period? What happens when velocity is slower (how do people behave)?
Velocity of money.
The velocity of money is the number of times per year, on average, a dollar goes around to produce a dollar’s worth of income. M * V = P * Y where M is the money supply,...